Credit cards have a huge effect on everyday life, with an average American owning an average of three credit cards. It’s the preferred payment method among 48% of consumers conducting online purchases, compared to the use of PayPal and debit cards.
Due to the portability and ease of use, credit cards provide a sense of empowerment to its cardholders, providing versatility in purchases and transactions. But this also comes with downsides as overspending also comes up, being a real danger to both finances and credit scores.
While it may seem difficult at first glance, credit card management is both simple and easy. Here are some steps to help you manage and control your credit card spending.
1. Set a Budget for Your Card
When it comes to credit card management, you need to set a budget on it. This means you need to set up an allotted amount to spend each month. Even if you have multiple credit cards available, you need to set boundaries and limits.
This way, you have enough to pay the card’s balance. Otherwise, you will find yourself in financial charges that increase the amount needed to settle the bills.
Consider using budgeting strategies to help you manage your expenses. This could either be the Zero-Sum Budgeting, Spreadsheet Budgeting, or Online Budgeting. These options let you find the right fit for you.
2. Keep Track of Your Spending
Pay attention to how much you spend and where it goes. This way, you know where the charges come from and you can plan ahead of time. This helps with how you allocated your budget and see if you have not gone beyond the spending limit.
Due to this, pay attention to your credit card statement. Keep an eye on the charges reflected and be on a lookout for the ones you don’t recognize.
If you opted for Online Budgeting, you can also download an app that allows you to track your spending. This allows you to see the details on the charges using your mobile device.
3. Pay Your Credit Card on Time
One of the best ways to prevent penalty charges is to pay on time. When you look at your credit card statement, pay attention to the due date for the payment. You can avoid any late fees or other additional charges that come with it.
Paying on time also helps your credit score. This allows for more opportunities like eligibility to loans and other benefits.
There are many ways for you to pay credit cards on time. Make sure to consider your options and available resources when doing so.
4. Understand the Different Card Types
Knowing the different card types can help you. This becomes an important factor if it is your first time to own and use a credit card. Each credit card type would have a set of benefits and requirements to take note of.
For instance, a typical credit card uses a credit line that you can pay off over time. On the other hand, a debit card would need you to deposit enough money in the account before you can use it. Managing your finances requires you to understand these basic differences.
Another differentiating factor is what each credit card type offers. You might encounter card types provided by retail stores, gas station chains, and so on. Pay attention to the benefits they offer and where else you can use them.
5. Know Your Credit Score
You might be wondering how your credit score affects you. It holds a whole lot when it comes to your credit card and the viability to secure a bigger loan.
It affects the prices of your bills, where a bad credit score result with you paying more. It also affects your chances of getting house loans or car loans, as well as affect your employment chances.
You have several ways to improve your credit score. The most important step is paying your bills on time. This rings especially true with credit card payments, as mentioned earlier.
Another method that helps your credit score is by settling debts. Keeping your credit balance low can also improve your credit score.
Rushing to apply for another credit card within a short time frame could also reflect badly on your credit score.
You can check with TransUnion, Experian, or Equifax for your Credit Score and Credit Standing to know where you are at.
6. Use Cash as Much as Possible
Using credit cards provide ease in your purchases. But, it would still be best to use your cash in hand for most of your transactions. While that does not apply to online transactions, paying with cash in establishments would be better.
The advantage of paying with cash is that it can help you save up. It allows for easier, tangible management of finances. With credit cards, you become prone to overspending.
Have both your credit card and cash with you. This way, you can have the flexibility that fits any situation.
7. Set a Sensible Credit Limit
When applying for a credit card, choose a credit limit that you can manage. This means to choose a limit you know you can pay, not the limit that would give you an excuse to spend more.
One way to avoid the temptation of overspending your card is to request for a reduced credit limit. You can go online, on the phone, or in-person to make this request. The changes will appear on your account within 1-2 business days.
Whenever you’re ready, you can request a credit limit increase. In case you need a limit increase for a special purchase, aim to pay that debt down. Once you settle that debt, reduce the limit back to a more manageable amount.
Be Smart and Disciplined with Credit Card Management
You can easily follow these credit card management steps. What it needs is discipline and being smart with your spending.
Avoid the temptation of overspending. This way, you should be able to worry less about the monthly payments.
Remember the perks of a well-managed credit card. You have more opportunities opening up when you have a high credit score.
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